How to get expert MF advise and save lakhs in commissions

The mutual fund regulator has made several investor-friendly moves, which haven't gone down well with the distributors and advisors as most of these steps have shrunk their pie of commissions. But there is a set of advisors who failed to bog down to the blow and made these regulatory measures an opportunity.

So, instead of withering down to the direct plans heat, which have been offered on the Indian mutual fund landscape for more than three and half years now, advisors are packaging the convenience of the online investing along with hand holding on selecting the right fund on this very direct investing route that was introduced by regulator Securities and Exchange Board of India (Sebi) in January 2013.

Advisories such as invezta.com, orowealth.com, bharosaclub.com, unovest.co have shunned the regular plans, which bring in the commissions for distributors, and made investing into direct plans their business model.

Of course, an investor can approach the mutual fund directly or invest through registrars such as Karvy and CAMS or even the public infrastructure of MFUtility and save on commissions. But this route involves running around for initial Know Your Customer verification needs for first time investors and the decision to pick the right fund is a major challenge for investors looking to go direct.

So, these robo-advisories tackle the problems of investors – willing to go direct to save 0.5-1.5% of amount invested while away as commissions – head on.

But why would they help investors invest for free in a direct plan without expecting any commissions?

"India currently has less than 1% people investing in mutual funds and we see this number growing significantly with time to come. Even if the number of investors doubles from 1 crore to 2 crore in the next few years, (with an average revenue per investor of Rs 1000), the opportunity would be Rs 1,000 crore. Even then, we would only be having 2% penetration with huge upside in the vicinity," elucidates Sharad Singh, co-founder and CEO of Valuefy Solutions, which operates Invezta.com.

Even though these intermediaries don't earn commission, they charge an annual advisory fee, after you cross the initial investment limit.

Fee

Different websites have a different pay model. Bharosa Club offers three packages starting Rs 30 per month, Rs 150 per month or Rs 300 per month, where you can invest in their recommended SIPs (basic package) or opt for your own choice of schemes and their recommendations. Those opting for the premium package also get the service of consultation with experts, tax optimisation and re-balancing of asset allocation.

Invezta claims not to charge any fee until the investments cross Rs 50,000. There after, a facility of Rs 79 per month is available for transacting in direct plans, wherein you can get your portfolio reports and track your goals. Those looking for specific fund recommendations along with asset allocation rebalancing would have to opt for Rs 109 per month.

Invezta has a facility where you are charged only if it works. Explaining the offer, the Invezta website states, "If the funds recommended by Invezta and invested in by the investor do not beat the category average returns in a quarterly evaluation, that quarter shall be free for the investor. So in the next subscription cycle, the investor would only need to pay for 3 quarters worth of fee and he/she shall get full year of subscription."

But if there is a fee involved, then what do these advisories bring on the table for investors? The investors get the ease of investing through an intermediary into the direct plans of mutual funds, without bearing the commissions.

The pitch to investors that these new set of advisors make is that you get ease of investing and save as much as Rs 3.5-4 lakh over a period of 25 years if you invest Rs 12,000 per annum or around Rs 18 lakh if you invest Rs 60,000 per year at a fee of as low as Rs 1,000 per year or Rs 54,000 over 25 years.

Explaining the strategy, chief of another online advisory, which is bracing up for launch in the coming months, says, "Commissions worth 0.5-1.5% per year is doled out on assets invested. Even if a mid-range value is considered, the advisory fee structure would prove to be cheaper for investors."

Since there are no commissions involved, it helps the advisory sites claim that the quality of advise is not biased and offered only for the benefit of investor.

The recent addition of e-know your customer (e-KYC) facility through biometric devices and Aadhar database too is assisting online advisories reduce the amount they spend on onboarding fresh investors.

"KYC experience has been one reason why people have stayed away from mutual funds. We have been offering paperless way of investing for the past few months, using E-KYC as the commissions aren't feasible for collecting physical forms and cheques. We ask investors to send us pictures of PAN, take selfies for pictures followed by KYC verification using online video conference providers such as Skype," says Subramanya S V, co-founder of Fisdom, which offers app and web-based investment platform.

Fisdom is able to automatically generate forms, once the investors submit documents and pictures digitally. "Onboarding is simplified for those willing to invest Rs 50,000 per year. Later during the course of the year we get them to complete the formal KYC," Subramanya adds.

But with the ease of investing, investors tend to save more instead of sitting on the fence. "Our average investment size per customer is 2-3 times the industry average which shows investors' affinity to Invezta," adds Singh.

But before falling for the bait of hassle-free direct plan investment through any intermediary, asking for advisory fee, you should always check whether they have an RIA number, which is offered by Sebi upon Registration as Investment Advisors. The same number can be cross checked with the Sebi database as "No person shall act as an investment adviser or hold itself out as an investment adviser unless he has obtained a certificate of registration from Sebi," as per the Investment Advisers Regulations, 2013.